Outstripping Expectations

The Chinese economy looks set to maintain stable and moderate growth in 2014

From: Beijing Review Updated: 2014-02-07 09:27
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The National Bureau of Statistics (NBS) said on January 20 that in 2013, China's GDP grew 7.7 percent to 56 trillion yuan ($9.17 trillion), reaching the goal of 7.5 percent set by the Central Government at the beginning of the year. In short, the Chinese economy has continued to grow at a relatively quick pace.

Such a growth rate represents a hard-earned achievement. In 2013, the Chinese Government intensified economic restructuring, and the massive shutdown of outdated production capacity with high-pollution and high-energy consumption levels might well have caused economic downturn. But to guarantee an increase in the employment rate and improve people's standard of living, the Chinese Government had to ensure the economy developed stably. This seemingly paradoxical situation made the prognosis for economic growth rather pessimistic. However, the figures for 2013 showed that the Chinese Government has managed to balance economic transformation and growth.

Ma Jiantang, head of the NBS, said that faced with increasingly complicated and severe external and internal conditions, China has firmly deepened its reform and opening up and implemented innovative macro-control measures using a scientific approach. According to him, the overall national economic performance in 2013 showed a good momentum of stable and moderate growth.

However, he also claimed that some preexisting problems, such as serious surplus capacity and potential risks in the banking sector, have not been alleviated and these have had adverse impacts on the economy. These are problems China will have to deal with in its future economic development.

Up from the bottom

China's economic growth first slowed down and then resumed in 2013. According to the NBS figures, in the first two quarters of 2013, economic growth dropped, and began to rise again in the third quarter.

Liu Yingqiu, a researcher with the Chinese Academy of Social Sciences (CASS), thought that sluggish demand in the domestic and foreign markets and economic restructuring are the main reasons for the fluctuations in economic growth.

To ensure economic growth in 2013, the Central Government continued its policy of making appropriate adjustments in accordance with the economic situation. It launched several reform measures such as reducing items subject to administrative approval, initiating interest rate liberalization, accelerating the development of energy-saving and environmental protection industries, supporting micro- and small enterprises in financing, encouraging spending in the information industries, reforming the railway investment and financing mechanism, and establishing the Shanghai Pilot Free Trade Zone.

These measures successfully reversed the downturn of economic growth during the first two quarters, ensuring that the country beat its target for economic growth for the whole year.

Ma said the Chinese economy had the characteristics of being "stable, progressive and good" in 2013. The overall economic performance, employment and prices were kept stable; economic restructuring made positive progress with industrial structure being optimized, demand structure improved, regional development was better balanced, income became more equally distributed, and the quality of economic growth and people's standard of living both took a turn for the better. These achievements indicated that the reform measures have been timely and effective.

Wang Yong, an analyst with CITIC Securities Co. Ltd., said two areas were paramount in 2013: CPI and employment. The Central Government's target for CPI at the beginning of 2013 was below 3.5 percent, while the final result was 2.6 percent.

Wang said owing to the effects of the U.S. quantitative easing policy, the whole world has been suffering from rising inflation, especially the emerging market nations. The inflationary rates in Brazil, Russia and India stood at 5 percent, 6 percent and 9 percent respectively at the end of 2013. Hence the fact that China managed to keep its inflationary rate down at 2.6 percent represents a remarkable achievement.

The other important area was employment. In 2013, China created more than 11 million new jobs, surpassing its target of 9 million at the beginning of the year.

According to a report released by the National Academy of Economic Strategy under the CASS, as a result of the economic reform and development that took place in 2013, China's disequilibrium in economic structure has been balanced. The report says China's imbalance index of economic structure dropped from 0.63 in 2011 to 0.49 currently.

The report holds that from 2013, the Chinese economy changed from "high growth" to "secondary high growth," and such "secondary high growth" will continue for three reasons. Firstly, rising costs in the service sector will increase the sector's contribution to the economy, but because of low productivity, the service sector will be unable to help maintain a high speed of development. Therefore, the rising contribution of the service sector will slow down overall economic growth to some extent.

Secondly, the reduction of surplus capacity relies on the realization of plans for industrial upgrading and economic transformation, and economic restructuring is expected to continue for a long time. It will take at least three to five years for China to solve the problem of overcapacity.

Thirdly, upsurge in market demand will gradually drop as globalization, urbanization and heavy industrialization will no longer progress simultaneously.  

Dark clouds on the horizon

Sun Jie, a researcher with the Institute of World Economics and Politics of the CASS, said it will be a little difficult for the Chinese economy to maintain steady growth in the long term. "It is possible to ensure stable growth in the short term, but to maintain steady growth, particularly in the long term, China must overcome a series of chronic problems and make tough adjustments to its economic structure," Sun said.

He believed the Chinese economy has been heavily relying on investment and exports. Such structural imbalance, he argued, threatens the sustainability of China's economic growth. Over the past decade, China has attached importance to the development of science, technology and other emerging industries, but the potentials of these industries in pushing forward economic development are far from being fully realized. Therefore, it would be a great challenge for China to maintain 7-percent annual growth in coming years by relying primarily on the science and technology industries.

Ma also said that the Chinese economy is in a crucial period of transformation, with many long-existing deep-rooted problems not yet resolved and foundations for economic recovery needing to be further consolidated. Moreover, he claimed there are still risks present in local government debts and that the government should further intensify shutdown of outdated production capacity. All these problems require that the Chinese Government continues reform in various aspects of economic and social development.

Chen Daofu, chief of the Research Institute of Finance at the Development Research Center of the State Council, thought the biggest challenge that the Chinese economy faces is its overall transformation, and that a model driven by domestic demand and centering on consumers must be established. This requires rebuilding the relationship between the government, the market and society. The measure of streamlining administration and delegating power to lower levels of the Central Government, which was initiated in 2013, is just the beginning of the effort to re-establish this relationship.

According to Chen, the current economic situation indicates that the task of reducing overcapacity is still arduous. In 2013, only 76 percent of the production capacity in Chinese industrial companies was actually utilized, lower than the international average of 80 percent. Overcapacity in the industries of steel, electrolytic aluminum, cement, flat glass and shipbuilding is particularly serious, with only 70 percent of production capacity being utilized.

An overabundance of loans in industries or projects with redundant construction or overcapacity go against the targets set for economic restructuring, and will also bring many risks to the financial industry. The cash crunch Chinese banks experienced in 2013 may become the norm in 2014, a factor which will threaten the steady growth of the Chinese economy.

Silver lining

China is deepening its reforms in the year 2014. Liu from CASS said the Chinese economy will face the challenges of uncertain demand and continual restructuring inherent in deepened reform, but that the international environment will take a turn for the better and the reforms will help to stabilize market expectations. Therefore, despite some brief periods of fluctuation, he believed the overall economic performance will be stable and the economic growth will rise slightly.

Liu continued that although the rate of economic growth in 2013 became more stable, it is not an inexorable trend. In 2014, China should continue effective macro-control and seek a balance between "ensuring growth, readjusting structure and advancing reform."

He suggested that China properly expand government-led investment so as to offset some influence on the economy brought about by the slowdown of investment growth, but it should avoid stimulating new surplus capacity. Liu also said that China should continue its prudent monetary policy, and promote development of the real economy and transformation of its economic structure by adjusting the allocation of financial resources.

Xu Gao, chief analyst on macroeconomy with Everbright Securities Co. Ltd., thought China's GDP growth in 2014 may go up to 7.9 percent, and investment and consumption may make a contribution to the economy equal to that of 2013. As the prospects for recovery in developed economies becomes clearer, exports will play a significant role in driving up economic growth. 

According to Xu, the risks of China's local government debts are under control, but China must place stringent restrictions on newly increased debts and ensure that cash flows. If the current borrowing model continues, where local governments assume huge responsibilities and borrow commercial loans for public welfare projects, the balance sheets of local governments will continue to worsen.

Xu continued that the global economy will go on improving in 2014, particularly in developed economies. The U.S. economy will continue its powerful recovery, and Europe may see an end to recession and embrace a low-speed rate of growth. Recovery of developed economies will expand China's net exports, which would result in positive outcomes for the Chinese economy.

Ma was even more optimistic about China's economic state of affairs in 2014. According to him, there are many favorable conditions that can help maintain the current momentum in the economy. Firstly, the basic situation of China's economic development has not changed, and urbanization, industrialization, information-based development and agricultural modernization are still in progress. During this process, there will be huge increases both in investment and consumption demand, and the efficiency of supplies will also be improved.

Secondly, the Central Government initiated a series of measures to deepen reform last year, such as streamlining administration and delegating power. The Third Plenary Session of the 18th Central Committee of the Communist Party of China held last November also made a blueprint for future reform. Ma believed that these measures will stimulate the energy required for national development as well as creativity in the market, thus tapping potential sources of economic growth. Reform is therefore an important factor in China's attempt to maintain steady economic development.

Thirdly, Ma claimed that investment, exports and consumption will ensure stable and fast growth in 2014. Although growth in investment declined in 2013, the whole-year growth of 19.6 percent was still within satisfactory levels. He thought that, as urbanization continues, transport facilities in central and western regions will improve and energy-saving and environmental protection industries will grow this year, and that these factors will, again, help to further growth. As for consumption, the rapid increase in residential income in urban and rural areas last year has laid a solid foundation for steady increases in consumption in 2014.

Xu said exports will greatly benefit from the recovery of the global economy. The World Bank estimated in January that the world economy will go up 3.2 percent this year, while its forecast for 2013 was only 2.4 percent. The International Monetary Fund made its forecast for 2014 at 3.6 percent. Ma stated these figures indicate that the recovery of developed economies will continue unabated, and that demand from the international market will improve, laying the foundation for the steady growth of Chinese exports.

"I believe that in 2014 the national economy will continue to grow, the economic structure will be improved, the quality of economic growth and people's standard of living will be raised," said Ma.

Major Economic Developments in 2013

- Foreign trade ranked world No.1

According to figures from the Ministry of Commerce, in 2013, the volume of China's commodity trade reached $4.16 trillion, a figure which looks set to top the United States and place China first globally. This is another significant achievement after China became the world's second largest economy.

- Yuan appreciated unilaterally

In 2013, the renminbi's exchange rate against the U.S. dollar hit a record high, and the yuan appreciated 3 percent throughout the year, three times the appreciation in 2012. This contrasted against the depreciation of currencies of the other emerging economies and the overall slowdown of China's economic growth.

- Banks faced cash crunch

Cash crunch was among the key buzzwords of China's economic development in 2013. As China tightened its money supplies, large commercial banks also needed to borrow money. The interbank-offered rate hit record highs in late June.

(Source: Xinhua News Agency)

  

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